UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
Commission File No. 000-22166
AETRIUM INCORPORATED
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1439182
(State or other jurisdiction ( I.R.S. Employer Identification No.)
of incorporation or
organization)
2350 HELEN STREET, NO. ST. PAUL, MINNESOTA 55109
( Address of principal executive offices) (Zip Code)
(612) 770-2000
(Registrant's telephone number)
Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 12 months ( or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes _X_ No ___
Number of shares of Common Stock, $.001 par value,
outstanding as of November 5, 1997 8,786,740
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AETRIUM INCORPORATED
INDEX
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<CAPTION>
PAGE
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PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements:
Consolidated Balance Sheets as of September 30, 1997
(unaudited) and December 31, 1996 3-4
Consolidated Statements of Income (unaudited) for the
three month and nine month periods ended 5
September 30, 1997 and 1996
Consolidated Statements of Cash Flows (unaudited) for the
nine months ended September 30, 1997 and 1996 6
Notes to unaudited consolidated financial statements 7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-10
PART II. OTHER INFORMATION
Legal Proceedings 11
Changes in Securities 11
Defaults Upon Senior Securities 11
Submission of Matters to a Vote of Security Holders 11
Other Information 11
Exhibits and Reports on Form 8-K 11
SIGNATURES 12
</TABLE>
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AETRIUM INCORPORATED
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, December 31,
1997 1996
--------------------
(Unaudited) (Audited)
(in thousands, except share data)
Current Assets:
Cash and cash equivalents $ 31,263 $ 34,756
Short term investments 0 1,028
Accounts receivable, net 12,229 8,032
Inventories 14,908 10,332
Deferred taxes 1,104 1,009
Other current assets 173 355
--------------------
Total current assets 59,677 55,512
--------------------
Property and equipment:
Furniture and fixtures 1,049 852
Equipment 4,150 3,683
--------------------
5,199 4,535
Less accumulated depreciation and
amortization (2,725) (2,276)
--------------------
Property and equipment, net 2,474 2,259
Noncurrent deferred taxes 4,750 2,519
Intangible and other assets, net 3,729 1,428
--------------------
Total assets $ 70,630 $ 61,718
====================
See accompanying notes to the consolidated financial statements.
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AETRIUM INCORPORATED
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
---------------------
(Unaudited) (Audited)
(in thousands, except share data)
<S> <C> <C>
Current liabilities:
Trade accounts payable $ 3,200 $ 1,041
Accrued compensation and commissions 2,142 1,515
Other accrued expenses 3,137 1,182
Income taxes payable 894 0
---------------------
Total current liabilities 9,373 3,738
---------------------
Shareholders' equity:
Common stock, $.001 par value; 16,000,000
shares authorized; 8,763,467 and 8,449,420
shares issued and outstanding, respectively 9 8
Additional paid-in capital 46,542 43,280
Retained earnings 14,706 14,692
---------------------
Total shareholders' equity 61,257 57,980
---------------------
Total liabilities and shareholders' equity $70,630 $61,718
=====================
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See accompanying notes to the consolidated financial statements.
<PAGE>
AETRIUM INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
-------------------------------- -------------------------------
1997 1996 1997 1996
---------------------------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales $ 18,683 $ 13,048 $ 45,540 $ 47,368
Cost of goods sold 8,825 6,057 21,938 20,997
--------------------------------------------------------------
Gross profit 9,858 6,991 23,602 26,371
--------------------------------------------------------------
Operating expenses:
Selling, general, and administrative 3,848 2,737 9,938 9,670
Research and development 2,969 1,934 7,421 5,785
Acquisition related charge 0 0 7,191 0
--------------------------------------------------------------
Total operating expenses 6,817 4,671 24,550 15,455
--------------------------------------------------------------
Income (loss) from operations 3,041 2,320 (948) 10,916
Other income, net 238 299 853 828
--------------------------------------------------------------
Income (loss) before income taxes 3,279 2,619 (95) 11,744
Provision for income taxes (935) (838) 109 (3,759)
--------------------------------------------------------------
Net income $ 2,344 $ 1,781 $ 14 $ 7,985
==============================================================
Net income per common share $ .26 $ .21 $ .00 $ .93
==============================================================
Weighted average common and
common equivalent shares
outstanding 9,064 8,566 8,894 8,590
==============================================================
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
AETRIUM INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30,
--------------------------
1997 1996
--------------------------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 14 $ 7,985
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 809 722
Acquisition related charge 7,191 0
Deferred taxes (2,265) 0
Changes in assets and liabilities, net of affect
of acquired business:
Accounts receivable, net (3,914) 2,438
Inventories (3,730) (2,157)
Other current assets 210 243
Intangible and other assets 0 2
Trade accounts payable 1,759 (745)
Accrued compensation and commissions 516 15
Other accrued expenses 125 (275)
Income taxes payable 1,768 416
--------------------------
Net cash provided by operating activities 2,483 8,644
--------------------------
Cash flows from investing activities:
Purchase of business, net of cash acquired (3,997) 0
Payment of acquisition related indebtedness 0 (7,287)
Sale (purchase) of short term investments 1,000 (1,028)
Purchase of property and equipment (575) (1,300)
Purchase of technology (1,000) 0
--------------------------
Net cash used in investing activities (4,572) (9,615)
--------------------------
Cash flows from financing activities:
Net proceeds from issuance of common stock 763 50
Repurchase of common stock related to exercise of
stock options (874) (826)
Principal payments on debt (1,293) (175)
--------------------------
Net cash used in financing activities (1,404) (951)
--------------------------
Net decrease in cash and cash equivalents (3,493) (1,922)
Cash and cash equivalents at beginning of period 34,756 35,291
--------------------------
Cash and cash equivalents at end of period $ 31,263 $ 33,369
==========================
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
AETRIUM INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. INTERIM FINANCIAL REPORTING
In the opinion of management, the accompanying unaudited consolidated
financial statements include all adjustments necessary to present fairly
the financial position, results of operations, and changes in cash flows
for the interim periods presented.
Certain footnote information has been condensed or omitted from these
financial statements. Therefore, these financial statements should be
read in conjunction with the consolidated financial statements and
accompanying footnotes included in Form 10-K for the year ended December
31, 1996.
2. INVENTORIES
Inventories consist of the following:
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<CAPTION>
September 30, December 31,
1997 1996
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(in thousands)
<S> <C> <C>
Purchased parts and completed subassemblies $ 6,398 $ 7,330
Work in process 5,807 2,105
Finished goods, including demonstration equipment 2,703 897
------- -------
Total $14,908 $10,332
======= =======
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3. NET INCOME PER COMMON SHARE
Net income per common share is computed by dividing net income by the
weighted average number of shares of common stock and common stock
equivalent shares outstanding during the period. Common stock equivalents
include stock options and warrants using the treasury stock method.
4. ACQUISITION - FORWARD SYSTEMS AUTOMATION
On April 1, 1997, the company acquired substantially all of the assets
(including in-process research and development) and assumed certain
liabilities of Forward Systems Automation, Inc. ("FSA"), a privately-held
manufacturer of equipment for the semiconductor and electronic component
industries. The purchase price totaled $6,749,840 including $4,000,000 of
cash, 186,000 shares of Aetrium common stock valued at $2,499,840 and
$250,000 of acquisition related costs. In addition, the company assumed
certain FSA notes payable obligations of approximately $1,293,000 which
were paid on April 1, 1997 concurrent with the closing of the
acquisition. The acquisition was accounted for as a purchase. The
company's consolidated financial statements include the results of FSA
operations since April 1, 1997.
<PAGE>
The following table presents the consolidated results of operations of
the company on an unaudited pro forma basis as if the acquisition had
taken place at the beginning of each period (in thousands, except per
share data):
Nine months ended September 30,
-------------------------------
Unaudited pro forma 1997 1996
------------------- ---------- ----------
Net sales $ 46,279 $ 49,254
---------- ----------
Net income 4,257 7,465
---------- ----------
Net income per share $ .48 $ .85
-------------------- ========== ==========
Reported net income per
share before acquisition
related charge $ .57 $ .93
-------------- ========== ==========
The acquisition related charge of $7,191,000 is not reflected in the pro
forma results above. The unaudited pro forma results of operations are for
comparative purposes only and do not necessarily reflect the results that
would have occurred had the acquisition occurred at the beginning of the
periods presented or the results which may occur in the future.
5. ACQUISITION RELATED INDEBTEDNESS - EJ SYSTEMS
Effective December 29,1995, the company acquired substantially all of the
assets and assumed certain liabilities of EJ Systems, Inc., a
manufacturer of environmental test products. The purchase price included
$7,287,323 of cash which was paid in January 1996.
6. INTANGIBLE AND OTHER ASSETS
On June 27, 1997, the company paid $1,000,000 to an independent
contractor for the development completed on a test handler which utilizes
conductive thermal conditioning and control technologies. The capitalized
technology is being amortized on a straight line basis over fifteen
years.
7. SUBSEQUENT EVENT
On November 7, 1997 the company acquired substantially all of the assets
and assumed certain liabilities of the Test Handler Division of Advantek
Inc. The company acquired only that portion of Advantek's business which
manufactures pick-and-place test handlers for the semiconductor industry.
The purchase price was approximately $4.0 million in cash.
<PAGE>
AETRIUM INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
NET SALES. Net sales were $18.7 million for the third quarter
ended September 30, 1997, a 43% increase over the $13.0 million
for the third quarter of 1996. Net sales were $45.5 million for
the nine months ended September 30, 1997, compared with $47.4
million for the comparable period in 1996, a 4% decrease.
During 1996, a general slowdown in the semiconductor industry
resulted in lower orders and reduced shipment levels in the
third and fourth quarters of the year. Although industry
conditions improved in early 1997 and net sales increased in
each of the first three quarters of 1997 and exceeded 1996
levels for the third quarter, sales for the nine months ended
September 30, 1997 remained slightly below 1996 levels. For the
nine months ended September 30, 1997 sales of test handlers,
reliability/environmental test equipment and spare parts were
lower than 1996 levels but were partially offset by increases
in the sales of automation modules. The inclusion of revenue
from the Aetrium-FSA division acquired in April 1997 did not
substantially impact the consolidated revenue totals for the
third quarter or nine-month period in 1997.
GROSS PROFIT. Gross profit was 52.8% of net sales for the third
quarter ended September 30, 1997 which was slightly lower than
the 53.6% for the third quarter of 1996. Gross profit was 51.8%
of net sales for the nine months ended September 30, 1997
compared with 55.7% for the nine months ended September 30,
1996. Gross profit margins for test handlers, which represent a
substantial portion of consolidated revenue, have been lower in
1997 due to lower unit volume and a shift in product mix to
more pick-and-place test handlers, which tend to have lower
margins than gravity-feed test handlers. Also, sales of lower
margin automation modules have represented a significantly
larger portion of total sales in the first nine months of 1997,
diluting the overall gross profit margin.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses were $3.8 million for the third quarter
ended September 30, 1997 compared with $2.7 million for the
comparable quarter in 1996 and were $ 9.9 million for the nine
months ended September 30, 1997 compared with $9.7 million for
the same period in 1996. The increase in 1997 expense for the
third quarter and nine-month period is primarily attributable
to higher sales incentives expense on higher order bookings
levels and the inclusion of FSA results since April 1, 1997.
RESEARCH AND DEVELOPMENT. Research and development expenses
were $3.0 million for the third quarter ended September 30,
1997 compared with $1.9 million for the third quarter in 1996
and were $7.4 million for the nine months ended September 30,
1997 compared with $5.8 million for the comparable period in
1996. Development spending increased at each of the company's
operating locations in 1997 compared with 1996 in response to
the industry's need for new equipment and product enhancements
to support changes in integrated circuit packages. In addition,
expenses of the recently acquired FSA business are included
since April 1, 1997. Research and development expenses
represented 16.3% and 12.2% of net sales for the nine months
ended September 30, 1997 and 1996 respectively, reflecting the
company's strategy of continuing to fund development activities
despite fluctuations in revenue levels.
<PAGE>
ACQUISITION RELATED CHARGE. In connection with the FSA
acquisition on April 1, 1997, $ 7,191,000 related to
in-process research and development was charged against income
in the second quarter of 1997 as the underlying research and
development projects had not yet reached technological
feasibility. A deferred tax benefit of approximately $ 2.2
million was recorded related to the future tax deductibility
of this expense.
INCOME TAX EXPENSE. During 1997, the company has been providing
for income tax expense at an effective rate of approximately
30% of pretax income compared with 32% for the first nine
months of 1996. The lower rate in 1997 results primarily from
the reinstatement of the federal research tax credit in
mid-1996. The effective tax rates compare favorably with the
Federal and state statutory rates primarily due to benefits
associated with the company's Foreign Sales Corporation and
research tax credits as well as the implementation of various
tax planning strategies, including the investment of excess
funds in tax exempt instruments.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The company has a $5.0 million line of credit agreement with
Harris Trust and Savings Bank in Chicago, Illinois. Borrowings
under this agreement are secured by receivables, inventories
and general intangibles. Borrowing is limited to a percentage
of eligible receivables and inventories. There were no line of
credit advances outstanding as of September 30, 1997 or
December 31, 1996.
The company had cash and short term investments of
approximately $31.3 million at September 30, 1997. As explained
above, the company expects to disburse a total of approximately
$ 4.0 million before December 31, 1997 in connection with the
acquisition of the Test Handler Division of Advantek Inc. The
company believes its remaining cash balances, funds generated
from operations, and borrowings available under its credit
facility will be sufficient to meet capital expenditure and
working capital needs for at least 24 months. The company may
acquire other companies, product lines or technologies that are
complementary to the company's business, and the company's
working capital needs may change as a result of such
acquisitions.
FINANCIAL CONDITION, BUSINESS RISKS AND UNCERTAINTIES
A number of risks and uncertainties exist which could impact
the company's future operating results. These uncertainties
include, but are not limited to, general economic conditions,
competition, changes in rates of capital spending by
semiconductor manufacturers, the company's success in
developing new products and technologies, market acceptance of
new products, risks and unanticipated costs associated with
integrating acquired businesses, and other factors, including
those set forth in the company's SEC filings, including its
current report on Form 10-K for the year ended December 31,
1996.
<PAGE>
AETRIUM INCORPORATED
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None which the company believes will have a material
adverse impact on its financial condition or results of
operations.
Item 2. Changes in Securities
None.
Item 3. Defaults on Senior Securities
None.
Item 4. Submissions of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exh 27 - Financial Data Schedule.
(b) Reports on Form 8-K
None.
<PAGE>
AETRIUM INCORPORATED
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AETRIUM INCORPORATED
(Registrant)
Date: November 12, 1997 By: /s/ Joseph C. Levesque
-----------------------
Joseph C. Levesque
Chairman of the Board, President, and
Chief Executive Officer
Date: November 12, 1997 By: /s/ Darnell L. Boehm
-----------------------
Darnell L. Boehm
Chief Financial Officer, Secretary, and
Director
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 31,263
<SECURITIES> 0
<RECEIVABLES> 12,229
<ALLOWANCES> 0
<INVENTORY> 14,908
<CURRENT-ASSETS> 59,677
<PP&E> 5,199
<DEPRECIATION> 2,725
<TOTAL-ASSETS> 70,630
<CURRENT-LIABILITIES> 9,373
<BONDS> 0
0
0
<COMMON> 9
<OTHER-SE> 61,248
<TOTAL-LIABILITY-AND-EQUITY> 70,630
<SALES> 45,540
<TOTAL-REVENUES> 45,540
<CGS> 21,938
<TOTAL-COSTS> 21,938
<OTHER-EXPENSES> 14,612
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (95)
<INCOME-TAX> (109)
<INCOME-CONTINUING> 14
<DISCONTINUED> 0
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<EPS-PRIMARY> .00
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</TABLE>
